Following is the transcript of press conference by the Chief Executive, Mr Tung Chee Hwa, at the HKETO in London on October 22, 1997.

Mr John Tsang: Thank you all for coming. I do not think I need to introduce Mr Tung, you all know him very well. Mr Tung will make a statement and then he will answer questions first in English, but he appreciates that a lot of colleagues from the media come from Hong Kong and he will spend the last 10-15 minutes answering questions in Mandarin or Cantonese, so you can save those for last.

Mr Tung: I am delighted to be back in London. I have had two very full days of work. I am leaving tomorrow and going back to Hong Kong. The purpose of my trip here is to explain to our friends in the UK about Hong Kong since 1 July and how well we are doing. The purpose also is to try to enhance the very close relationship we already have with the UK, particularly in the area of investment, in the areas of economic activities, in areas of trade.

The other purpose is to make the point that having shed the baggage of history, there should be a new relationship between China and Britain and that a good relationship is good for both countries, and also very important to Hong Kong.

In my meetings with the Prime Minister and the Foreign Secretary, there was a full range of discussion on all sorts of issues. Some are of interest to both Hong Kong and the UK. The discussions were very useful.

It was a very useful and beneficial visit for me and for my colleagues. It is particularly pleasant to be here when the weather is so nice in London.

Cliff Bale, RTHK: Mr Tung, could I ask you first of all, earlier this morning you talked about the possibility that interest rates might have to go up. Could you elaborate on this? Secondly, could you give your reaction to what Robin Cook had to say on the question of the Vietnamese Boat People?

Mr Tung: I was asked this morning about the fact that in defending the Hong Kong dollar, the interest rate might have to go up. I answered in an affirmative way that in the process of defending a speculative effort against the Hong Kong dollar, the interest rate would have to go up.

Let me say this. Our fundamentals are very good. We have a huge fiscal reserve. We are running at a budget surplus again this year. We have very conservative financial management and the speculators will not win because our fundamentals are very good, and we are very determined to hold that particular line.

Yes, there may be some speculation, but we are well prepared, we are ready to take it on. The interest rate may have to go up a bit, but I believe these will be short term issues, and as soon as the threat is over, the interest rate will come down again. We are ready for it.

With regards to the Vietnamese Boat People issue, I have appealed, as I have done in Japan, in Brussels, and particularly here in London, for the international community to help to solve this particular problem. The Vietnamese Boat People problem has been with us for over 20 years, and we in Hong Kong as citizens of the world have certainly done our part and it is now time to bring this issue to a close. I want all the nations to help us as much as they can, particularly in the UK. I appeal to the UK's moral obligations to help us, and I very much hope that there will be some response. I recognise the difficulties all around, but we must keep on trying.

Yuen Chan, ATV: Mr Tung, you have spoken of prudent financial management. Could you then explain why it has been decided to throw an 80th birthday party bash for Sir S Y at Government House at the taxpayer's expense?

Mr Tung: Sir S Y has had a very distinguished career serving Hong Kong, and at the very ripe age of 80, he is continuing to serve Hong Kong, working very hard, and I feel it is right for me and for Hong Kong to say Happy Birthday to him, and also to thank him for all the services he has rendered all through the years for Hong Kong.

I regularly have lunches and dinners with all sorts of people, and the purpose is really, as Chief Executive of Hong Kong, to make sure that I am talking to all the people from all the different cross-sections of our community, sometimes with a view to communicating, other times with a view to expressing thanks, and other times with a view just to listen to people through lunches and dinners, and this is a very important function of the Chief Executive, as it was with many governors in previous years.

It is not something exceptional, and it is an important thing to do.

Question (BBC): Today China announced a drop in interest rates. By all the laws of economics, that should mean that there may be more amount of money willing to flow into the Hong Kong market. Do you think that that might have an impact, and could you see perhaps an end to the turmoil we have so far seen this week with markets dropping by 15 per cent?

Mr Tung: I have not followed this particular issue of a drop in interest rate in China. If it has happened, and I am sure you are right, it is because of China's domestic and economic reasons. China's inflation figures have been very encouraging. If there is a drop, it is not unexpected. But as far as Hong Kong is concerned, the drop in the stock market is somewhat related to anxieties about the value of our currency and it is also a free market operating at its best. In Hong Kong, when you want to sell shares, you will always find a buyer, and I believe the market will adjust itself. Obviously a drop of 15 per cent is quite substantial, but I am sure the free market is in operation, and it will find the right level; the market will stabilise and eventually start to go up again.

Question (Associated Press): The Prime Minister said that he is determined that Britain should open a new chapter in its relations with China, and that he is considering a visit to Beijing. I assume that you support this, and I would like to know what other steps you think that Britain could take to open this new chapter.

Mr Tung: As I said at the beginning, I think a new chapter of relationships between the UK and China is very timely, it is very important to both countries, and certainly very important to Hong Kong. I am delighted that the Prime Minister sees it this way. It is very good that he is taking this rather visionary move, and I am glad this is happening. I think that this important relationship will develop further. I am absolutely delighted. As I said, it is important to Hong Kong that the UK and China have a good relationship.

Question: Following on that question, do you feel after the talks you have had here, both with Government and businessmen, that there is a change of attitude now in this country, and that you have managed to achieve something in bringing it about? Do you think that we really are moving into a post-Patten era, if you like? Patten was very strong; he is still in the press here. There is a lot of very strong feeling still along those lines.

Mr Tung: Let me be honest with you. I don't claim at all that I can change attitudes here, but I will tell you one thing. I do detect a change here, and it is a good thing for the United Kingdom, it is a good thing for China and for Hong Kong that this is happening. It is important.

Question: Just two follow-up questions. The first is on the stock market. Given that it fell by 14-15 per cent in the past week, what is your advice to Hong Kong investors? Do you think they should panic at this stage?

My second question relates to the Vietnamese Boat People problem. It seems quite clear that Britain is not going to do anything more to help Hong Kong resolve the problem. Mr Cook said very clearly that he thought that Britain had done more than it should do to help solve the problem. Is there any way you can press Britain to give us more help, and if not, how are we going to resolve the problem?

Mr Tung: In so far as the stock market is concerned, obviously there is no reason to panic. The fundamentals in Hong Kong still remain very strong. Yes, the market has fallen, but I think it will find its own level. What I do say is that the institutional investors, the professionals, usually know what they are doing. I just appeal to small investors to please be careful. There is no need to panic, just like there was no need to rush into it when the market was higher. It is important to understand all the fundamentals of the shares one is buying.

As far as the Vietnamese Boat People are concerned, let me repeat once again that we in Hong Kong have really done all we can. We have taken a tremendous share of responsibility as a member of the international community. We appeal to Britain and other nations, but particularly Britain, to be more helpful. I believe there will be further diplomatic efforts which Britain has promised to take. These are some of the things that we hope will help us to solve these problems, but at the end of the day, as I said even during my Policy Speech, the problem has been with us for too long; we must resolve it, and close the chapter one way or the other. We shall do so quickly.

Question (BBC): Can you say when Hong Kong will end its first asylum post status, and if you think Hong Kong has done enough, why don't you end it now?

Mr Tung: As I said, we have done our share as a member of the world community. It is time to bring this issue to a close. We are seeing and working very hard, talking to all the interested parties, whether it is in Vietnam or when I was in Japan, or Brussels, but particularly this time in London. I feel the UK has an obligation. We are trying to see what more the whole community around the world can do for us. Whatever the outcome might be, we have to bring this whole chapter to a close sooner rather than later, so it will be done, and you will get the answer when the time comes. It will not be very long.

Question (BBC): Talking about the issues of the Vietnamese Boat People, is there a role for China in this? Is China doing anything to help Hong Kong, or is Hong Kong left on its own?

Mr Tung: Our sovereign China has also been very active, trying to helpful in solving this particular problem. They are also trying very hard.

Question: You mentioned that it is important for the relationship between China and Britain to go further. What kind of a role does Hong Kong play in this?

Mr Tung: There will be the beginning of a dialogue in a very positive way between China and Britain. I believe this will be happening. We will be very delighted when and if this happens, but in the meantime, as far as Hong Kong is concerned, in the old days we were an obstacle, but now we will become the bridge in the future.

Question (Associated Press Television): You mentioned earlier this morning that there is no self-censorship in Hong Kong, but recently there have been reports about three Tibetan movies about to be released, and yet they have not found a single distributor willing to take up the pictures in Hong Kong. If that is not self-censorship, what is your explanation?

Mr Tung: In Hong Kong, we let the market forces decide for themselves. The film distributors have to make their own studies financially and take their own decisions. I have seen the press report like you have. I do not have this issued verified at all, but if this is their decision, this is their decision.

If it is self-censorship, I will tell you that as a Chinese person, I am very sensitive about these things, and I would hope that other people who are not Chinese should be sensitive to Chinese feelings on these issues.

Question (Freelance): A couple of questions again on this morning. You mentioned that as a Chinese person, you felt strongly about what we would all regard is the deplorable events of the Opium Wars. As a Chinese person, do you have similar feelings about the more recent events in Tiananmen Square, and do you feel that they ought to be continued to be remembered in the same way as you remembered the Opium Wars?

Secondly, I was a bit confused about your answer as to what went wrong in Hong Kong with democratic expansion between 1995 and 1997, and I take your point about the functional constituencies not have been intended by whoever to be a medium of universal suffrage, but what was the problem between 1995 and 1997? Was it that Hong Kong was insufficiently economically developed for democracy, or was it a question of civic development?

Mr Tung: Let me tell you this, Madam, we in Hong Kong care very much about democracy. We are very committed to democracy, but we will move forward in a way which is best suited for Hong Kong, and our judgment is that the functional constituency should do what it was originally intended to do, and that the 20 directly elected seats provides the avenue for those 2.5 million registered voters who want to vote in that regard.

We understand that there are people around the world and in Britain who are concerned about this particular issue, and I am glad always to listen to their views, but it is important because we in Hong Kong at the end of the day have to take the consequences of whatever decision we make. I think you agree with me that we, the Hong Kong people, have to decide how we move forward. The Executive Council and the Government have taken this decision, tabled it to the Legislature who have gone ahead. The Election Bills for the elections next May are now finalised, and we are going ahead on that basis.

I want to assure you that we care about democracy as much as anybody. Secondly, they will be fair and open elections. As far as the technical fine details of whether it is better this or that way are concerned, we in Hong Kong must judge for ourselves what is the best for Hong Kong.

On your first question, as I said, the important thing is to learn from history, but we shall not become a slave of history; we shall look forward, and move forward positively. That is the most important thing.

Question: My question is on the Hong Kong dollar peg. How far is Hong Kong prepared to see interest rates rise in defending the peg?

Mr Tung: Our determination to defend the linked exchange rate should not be doubted by anybody. The interest rate can go up, we will defend the dollar.